HYDERABAD: Alarm bells are ringing in the state government that the Union government is moving to protect micro-finance institutions (MFIs) and take them out of its regulatory purview. State government mandarins, who are hostile to the lending and recovery practices of MFIs, have compiled a long list of objections to the fine print in a bill the Centre is proposing to introduce in Parliament.The Micro-finance Institutions (Development and Regulation) Bill 2011, the draft of which was released last week, effectively seeks to place MFIs under the watch of the Reserve Bank of India rather than a stringent bill the state enacted last year reining in the lending companies.The AP government sought comprehensive amendments to the draft before the bill is introduced in Parliament. It questioned the move to put MFIs under RBI oversight while ignoring the borrower protection aspect of the problem. Broadly, the state government objects to the bill’s treatment of MFIs as ‘extended arms of banks and financial institutions’ and would rather deal with them as moneylending agencies subject to the stern law it enacted last year. The Andhra Pradesh MFIs (Regulation of Moneylending) Act 2010 was enacted after suicides by several borrowers were reported.“This is nothing but infringement of the powers of state governments. Considering the MFIs as arms of banks will give them privileges enjoyed by a bank without any related responsibilities,” fumed a senior official in the Law Department.Government officials say the Centere’s bill does nothing to protect borrowers’ interests. Unlike the state law, the draft bill does not crack down on multiple lending and evergreening of loans. It also frees MFIs from having to do due diligence before lending. Much of the borrower distress reported last year was due to MFIs giving multiple loans to poor borrowers who had no capacity to repay.State officials are particularly sore that the draft bill deals only cursorily with the coercive recovery practices of MFIs. “We received scores of complaints against MFIs’ practices of lending and recovery including collection of high interest rates and use of coercion in recovery process. There is need to protect poor borrowers against such exploitation,” said an official in the Rural Development Department.As an example of the shielding of MFIs in the draft bill, officials said it proposes that only a person authorised by RBI can file a complaint against MFIs in courts.“The draft seems to have been prepared keeping the interests of MFIs in mind. Civil society, experts and millions of stakeholders from vulnerable sections of society must be consulted and their concerns incorporated in the bill,” said the official.
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